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AmTrust International Underwriters Ltd. v. Enslein

United States District Court, W.D. Missouri, Western Division

October 1, 2019

AMTRUST INTERNATIONAL UNDERWRITERS LIMITED, Plaintiff,
v.
JERALD S. ENSLEIN, in his capacity as Chapter 7 Trustee for Xurex, Inc., et al., Defendants.

          ORDER AND OPINION (1) GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT, AND (2) DENYING DEFENDANT JERALD ENSLEIN'S MOTION FOR LEAVE TO FILE SUR-REPLY

          ORTRIE D. SMITH, SENIOR JUDGE

         Pending are Plaintiff AmTrust International Underwriters Limited's Motion for Partial Summary Judgment, and Defendant Jerald Enslein's Motion for Leave to File Sur-Reply. Docs. #78, 88. For the following reasons, Plaintiff's Motion for Partial Summary Judgment is granted, and Enslein's Motion for Leave to File Sur-Reply is denied.

         I. BACKGROUND

         A. Xurex's Bankruptcy

         On October 17, 2014, Xurex, Inc. filed a voluntary Chapter 7 petition for bankruptcy in the United States District Court for the Western District of Missouri. No. 14-43536-drd. Jerald Enslein was appointed to serve as trustee in the Xurex bankruptcy case. In March 2016, Enslein sent litigation hold letters to, among others, Xurex, DuraSeal Holdings S.r.L., DuraSeal Pipe Coatings Company LLC, and Joe Johnston informing them that they were being investigated and would likely be the subject of litigation. On August 31, 2016, Enslein, as trustee for Xurex, filed an adversary proceeding in the bankruptcy case. Adv. Proc. No. 16-4103.

         B. Enslein Lawsuit [1]

         In October 2016, Enslein asked the District Court to withdraw the reference of the adversary proceeding to the Bankruptcy Court. No. 16-9020 (Doc. #1). The Honorable Howard F. Sachs granted Enslein's request in April 2017 and withdrew the reference. Id. (Doc. #5) (hereinafter, “Enslein Lawsuit”). In May 2017, the matter was transferred to the undersigned, who has presided over the matter since then.

         In the Enslein Lawsuit, statutory and common law claims are brought against Giacomo Di Mase, Leonard Kaiser, Tristam[2] Jensvold, Steve McKeon, Lee Kraus, Jose Di Mase, DuraSeal Pipe Coatings Company LLC, DuraSeal Holdings S.r.L., Joe Johnston, Dietmar Rose, and Robert Olson. Id. (Doc. #1-2). Enslein contends Giacomo Di Mase, Kaiser, Jensvold, McKeon, Johnston, Rose, Olson, and others were members of Xurex's Board of Directors when the actions giving rise to the lawsuit occurred. Id. (Doc. #1-2, ¶¶ 11-16, 20-22). According to Enslein, Defendants breached agreements executed in 2010 and 2012; breached the covenant of good faith and fair dealing when executing the agreements; misappropriated Xurex's trade secrets; conspired to commit unlawful acts, causing Xurex to execute an agreement in September 2014; breached their fiduciary duties by causing Xurex to, among other things, execute the September 2014 agreement; and fraudulently transferred assets in connection with the September 2014 agreement. Id. (Doc. #1-2, ¶¶ 178-240). In August 2018, Enslein amended his complaint to include claims against another corporate entity (HDI, Holding Development Investment, S.A.) and revise and supplement the claims and allegations against the other Defendants. Doc. #243.

         C. This Lawsuit

         This matter concerns a directors and officers liability insurance policy Plaintiff issued to Xurex, and whether that policy requires Plaintiff to defend and indemnify certain Defendants in the Enslein Lawsuit.

         (1) Xurex's Application for Insurance

         In May 2014, Kaiser, Xurex's then-President and CEO, executed an application for insurance. The following paragraph appears at the top of the application's first page:

NOTICE: THE POLICY [FOR] WHICH YOU ARE APPLYING IS A CLAIMS-MADE POLICY. THE POLICY COVERS ONLY CLAIMS FIRST MADE AGAINST THE INSUREDS DURING THE POLICY PERIOD OR, IF ELECTED, THE EXTENDED REPORTING PERIOD, SUBJECT TO THE POLICY PROVISIONS. DEFENSE COSTS ARE APPLIED AGAINST THE APPLICABLE RETENTIONS. DEFENSE COSTS REDUCE AND MAY EXHAUST THE APPLICABLE LIMITS OF LIABILITY. THE INSURER IS NOT LIABLE FOR ANY LOSS, WHICH INCLUDES DEFENSE COSTS, IN EXCESS [OF] THE APPLICABLE LIMITS Of LIABILITY.

Doc. #79-4, at 2.[3]

         (2) Relevant Portions of the Policy

          Plaintiff issued a directors and officers policy (“the policy”) to Xurex for the period of June 1, 2014, to June 1, 2015, with a liability limit of $1, 000, 000. Doc. #79-3, at 3. The policy begins with “General Declarations.” The first paragraph in the “General Declarations” provides the following:

NOTICES: THIS POLICY PROVIDES CLAIMS-MADE COVERAGE. SUCH COVERAGE IS LIMITED TO LIABILITY FOR (I)CLAIMS FIRST MADE AGAINST INSUREDS DURING THE POLICY PERIOD OR, IF APPLICABLE, THE EXTENDED REPORTING PERIOD, AND (II)OTHER MATTERS, CIRCUMSTANCES OR WRONGFUL ACTS FIRST OCCURRING DURING THE POLICY PERIOD AND COVERED UNDER THIS POLICY. COVERAGE UNDER THIS POLICY IS CONDITIONED UPON NOTICE BEING TIMELY PROVIDED TO THE INSURER AS REQUIRED UNDER SECTION VI. OF THE GENERAL TERMS AND CONDITIONS. ANY COVERED DEFENSE COSTS, AND INVESTIGATION COSTS SHALL REDUCE THE LIMITS OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS, AND MAY BE APPLIED AGAINST THE RETENTION AMOUNT. EXCEPT AS EXPRESSLY PROVIDED FOR IN THE EMPLOYMENT PRACTICES LIABILITY COVERAGE ELEMENT AND THE FIDUCIARY LIABILITY COVERAGE ELEMENT, THE INSURER DOES NOT ASSUME ANY DUTY TO DEFEND. PLEASE READ THIS POLICY CAREFULLY AND REVIEW ITS COVERAGE WITH YOUR INSURANCE AGENT OR BROKER.

Doc. #79-3, at 3. The “General Terms and Conditions, ” which are “a part” of the policy and to which the insured agrees, include, inter alia, “Terms and Conditions, ” “Definitions, ” and “Reporting and Notice” provisions. Id. at 5-11.

         I. TERMS AND CONDITIONS

In addition to the terms and conditions set forth in these General Terms and Conditions, the terms and conditions of each Coverage Element shall apply to, and only to that particular Coverage Element and in no way shall be construed to apply to any other Coverage Element. If any provision of the General Terms and Conditions is inconsistent or in conflict with terms and conditions of any Coverage Element, the terms and conditions of such Coverage Element shall control for purposes of that Coverage Element.
* * * *

         II. DEFINITIONS

C. Coverage Element means collectively or individually the Directors and Officers and Private Company Liability Coverage Element, the Directors and Officers and Public Company Liability Coverage Element, the Employment Practices Liability Coverage Element or the Fiduciary Liability Coverage Element but only with respect to those indicated as included as part of this policy by all three of the following:
(i) indicated by [] in the General Declarations. ([] indicates the Coverage Element is not included)
(ii) for which a Coverage Element Limit of Liability is indicated in Item 3 of the General Declarations; and
(iii) for which such Coverage Element Declarations and coverage form are attached to and form part of this policy.

         VI. REPORTING AND NOTICE

         A. The Insured shall, as a condition precedent to the obligations of the Insurer under this policy, give notice to the Insurer by mail or electronically to the address set forth in Item 4(b) of the General Declarations of:

(i) any Claim made against an Insured,
(ii) any matter which could involve the payment of Adverse Media Event Loss under the Directors and Officers and Public Company Liability Coverage Element or Directors and Officers and Private Company Coverage Element, if purchased;
(iii) any matter which could involve the payment of Voluntary Compliance Loss under the Fiduciary Liability Coverage Element, if purchased; or
(iv) any Derivative Demand Investigation under the Directors and Officers and Public Company Liability Coverage Element or Directors and Officers and Private Company Coverage Element, if purchased, as soon as practicable but no later than 60 days after the expiration date shown in Item 2 of the General Declarations or its earlier cancellation or prior to the end of the Extended Reporting Period, if applicable.
B. If during the Policy Period or the Extended Reporting Period, if applicable, the Insureds become aware of any circumstances or Wrongful Act which may reasonably be expected to give rise to a Claim being made against the Insureds and give notice, by mail or electronically to the address set forth in Item 5 (b) of the General Declarations of such circumstances, along with a description of the alleged Wrongful Act, the allegations anticipated, the reasons for anticipating a Claim, and full particulars as to dates, persons and entities involved, then any Claim which subsequently is made against the Insureds and reported to the Insurer alleging, arising out of, based upon or attributable to such circumstances or alleging any Wrongful Act which is the same as or ...

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